Taxing the Poor to feed the Rich

By Joseph Teo
On 16 January 2014, the Public Transport Council (PTC) approved, according to them a 3.2% increase in public transport fares. A fare increase was not unanticipated. However, this coupled with persistent train failures – three in the first 3 weeks of this yearⁱ with at least one which required evacuation, has nonetheless caused much unhappiness amongst Singaporeans. The PTC has asked that the two issues of the fare hikes and breakdowns be kept separateⁱⁱ. Very well, let us set the breakdowns aside. Even so, the government has failed to address the dysfunction at the heart of our public transport policy
The fare increase and who it affects
The single statistic of a 3.2% fare rise is misleading. Some segments of the travelling public, low-wage workers, polytechnic students and the disabled will pay lower fares. Of those who experience higher fares – working adults – the fare increase is in fact from 3.06% to 5.48%ⁱⁱⁱ, with those travelling on shorter trips, or on feeder services only, experiencing a much higher increase^iv. The average commuter travels 9.8km per trip^v and so will experience a 4.72% increase in fares (highlighted).

Figure 1. Adult ez-link card fares over various distances
For Trunk routes, NSEW Lines, LRT (in cents)

So who are these people, the average adult commuter? According to the Fare Review Mechanism Committee^vi, “surveys show that the bottom 60% of households by income make up the majority of public transport users”. If we eliminate the lowest income workers, who may now pay less, then it is the lower-middle income group that is bearing the brunt of the 4.72% price increase.
The irrational claims justifying the need for an increase

Figure 2. SMRT continues to make profits in excess of $100m

During the years 2006 to 2010, SMRT’s profit after taxes and minority interests (PATMI) rose from $103.4m to $162.9m.^vii The disastrous train disruption on 15 December 2011, required SMRT increase its spending on maintenance, replace faulty and aging systems. The then CEO resigned shortly after the incident. Even after that, SMRT while experiencing a decline in profits still made in excess of $100m each year (Figure 1^viii).
Mr. Gerald Ee, normally perceptive and reasonable, was quoted in the Straits Times on 21 January 2014^ix as saying that “while the operators are still profitable… their finances would need to be healthy to maintain service reliability. They need to finance replacement and upgrading. The public may not appreciate that one bus costs about $400,000 and for trains the costs go into millions.” Unfortunately, in this instance, I am afraid that Mr. Ee has bought into the false rhetoric of either the transport companies or the government.
Most of the profits made by SMRT has been distributed to shareholders as dividends. Very little has been invested in maintaining the infrastructure (otherwise we would not see the sudden dip in profitability after the 2011 incident). As for new capital investments, the government is spending $1.1 billion in buying new buses for the transport operators^x, and $4.6 billion: upgrading the signaling system for North-South and East-West (NSEW) lines, upgrading of train depots and trackworks for stabling of additional trains, and purchase of additional trains. Our taxpayer dollars are being used to purchase the equipment for the companies to run their businesses. Why then the need for a fare increase? What happened to the hundreds of millions of dollars in profits made over the last fifteen to twenty years? Why were they not reinvested in the equipment and infrastructure that is now breaking down? How can Mr. Ee be sure that the future profits brought about by this fare increase will not also be distributed to the shareholders rather than invested in improving services?
The beneficiaries
Which, of course, brings us to who benefits from all this. Clearly the shareholders benefit, since they gain from the dividends paid out by SMRT. According to SMRT’s 2013 annual report, Temasek Holdings owns 54.2% of SMRT. One could argue that it is unlikely that the lower income or lower-middle income groups would own many shares in SMRT. It is much more likely that the wealthier Singaporeans (or foreigners) are the ones who can afford to hold shares and other equity investments. So while the 4.72% fare increase is largely borne by the lower-middle income, the benefits are unlikely to accrue to them. Are we then taxing the poor to feed the rich?
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